The Central Bank of Nigeria (CBN) recently injected $148 million into authorized local banks to bolster foreign currency liquidity and stabilize the naira. Amidst limited foreign currency availability, especially U.S. dollars, the apex bank conducted foreign exchange auctions last week to improve liquidity in the official market.
The dollar auction reversed prior trends, as the naira had approached a critical threshold that often triggers CBN intervention. According to reports from investment banks, the CBN held three separate auctions at an average rate of N1,600 to dollar to influence the market favorably.
Data from the FMDQ platform indicated that this increase in liquidity strengthened the naira by 5 basis points, reaching N1,600 per dollar on the Nigerian Autonomous Foreign Exchange Market (NAFEM). However, financial analysts argued the auction volume remained insufficient, despite a steady inflow of dollars into the foreign reserves.
“The naira continues to depreciate while the government prioritizes growing reserves, a stance at odds with the central bank’s core mandate,” experts remarked to MarketForces Africa. The spot rate ultimately ended the week aligned with the auction price.
Central bank data showed a $302.83 million boost in reserves, bringing gross reserves to $39.3 billion. However, activity at the Nigerian autonomous FX market dropped by 33.8% to $1.14 billion on Thursday, with trades conducted between N1,581.16 and N1,696.00, according to Cordros Capital Limited.
Forward contracts showed mixed movements; one-month and three-month FX forward contracts appreciated, while six- and 12-month contracts declined. The one-month forward rate rose by 1.2% to N1,679.55, and the three-month rate by 0.9% to N1,754.42 per dollar. Conversely, six-month and one-year contracts fell by 0.2% to N1,867.42 and 0.9% to N2,085.58, respectively.
While CBN interventions have continued sporadically, the steady depreciation of the naira points to an ongoing demand-supply imbalance. “This trend may persist in the short term, pending sufficient market inflows to sustain CBN’s interventions,” Cordros Capital noted.
AIICO Capital Limited reported that interbank NAFEM rates ranged between N1,585.43 and N1,697. Additionally, foreign reserves experienced positive momentum for an eighth consecutive week, aided partly by purchases from Foreign Portfolio Investors (FPIs), Cordros Capital stated.
Total turnover in the autonomous forex market fell by 33.1% to $1.22 billion on Thursday, according to investment firm reports. Trade activity remained within the N1,581.16 to N1,696.00 range, though weak FX liquidity continued to pressure the naira.
The parallel market saw a further rate hike due to persistent demand-supply imbalances, pushing the exchange rate above N1,730 per dollar as demand continued to exceed available foreign currency supply.
